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Crowdfunding is a way of financing projects and startups that has flourished in recent years thanks to the development of internet technologies. However, as in any other financial sphere, there are risks and threats here as well. Among them are fake platforms that use fraud and deception to achieve their goals. In this article, we will take a detailed look at how to avoid losses and not fall victim to scammers.
What is crowdfunding?
Crowdfunding is collective financing, where many people pool money to realize a specific project or idea. There are many platforms, both international and local, where authors can present their ideas, and potential investors can support them. In this system, the relationship between the project founder and the supporting investor is built on mutual interest: the first party receives funding, and the second has the opportunity to be part of something new and possibly make a profit.
Fraud in crowdfunding
Unfortunately, with the growth of crowdfunding popularity, the amount of fraud has also increased. Dealing with fake platforms, investors risk losing their funds. It is important to understand what schemes scammers use and how to recognize them.
Fake fundraisers
Fake fundraisers are one of the main forms of fraud in crowdfunding. Scammers create the appearance of a real project, present fake materials, and promise grand results. They may use images of fantastic products or services that will never be realized. Unfortunately, not every investor is able to recognize such schemes, making them an easy target.
Investment scams in startups
Investment scams in startups are mainly associated with promises of high returns and minimal risks. Scammers manipulate the emotions of potential investors, emphasizing the supposed uniqueness and prospects of projects. Along with this, they may provide fake financial reports and testimonials from "happy" investors to create an atmosphere of trust.
Charity fundraising scams
Another common type of fraud in crowdfunding is charity fundraising scams. Scammers create fake campaigns, convincing people to donate money for "wonderful" causes. This can be related to helping the homeless, treating seriously ill people, or protecting the environment. Such actions evoke strong emotional reactions, making people more susceptible to manipulation.
Fake crowdfunding projects
Fake crowdfunding projects often look like real ones and attract investors' attention with their bright presentation and 100% guarantee of success. But after collecting the necessary amount, the project turns out to be dead, and the organizers disappear.
How to verify a crowdfunding platform?
To avoid losses, it is important to know how to properly check crowdfunding platforms and projects. Here are a few steps to take before making investments.
Research the platform information
Before investing, it is necessary to thoroughly research the information about the platform you plan to participate in. Find out who is behind it: what successful projects they have and their reputation in the community. Legitimate platforms usually have publicly available reviews and examples of successful funding.
Check the project team
An important aspect of verification is the team behind the project. Study information about each participant: their experience, previous achievements, and reviews. Make sure the team has the necessary qualifications and experience in their field, which does not guarantee success but increases its likelihood.
Question the promises
If the project promises excessively high returns with unrealistic timelines and minimal risks, this should be a red flag. Practice shows that all good things require time and effort, which is unlikely in the case of startup investments.
Scams in startup investments
Scams are an inevitable reality in the startup world. So, on the Kickstarter platform, considered one of the largest crowdfunding resources, fraud can also be encountered. Unfortunately, unscrupulous project creators can use its platform to divert funds.
How do scam projects operate on Kickstarter?
Some projects on Kickstarter look harmless and even enticing. Scammers can create a presentation that includes photos, videos, and display of funds raised. They may actively communicate with potential backers, creating the appearance of openness and honesty. However, as practice shows, after the collection is complete, they disappear without a trace.
How to protect yourself from scams?
To protect yourself from scams on platforms like Kickstarter, it is important to follow a few recommendations. First, always check the project's reputation. Read reviews, pay attention to the team's previous work and the history of completed campaigns. Second, be cautious with finances: do not invest all your funds in one project and remember about exploratory investments.
Crowdfunding represents an attractive opportunity for both investors and creators. However, it is necessary to be attentive and informed about the risks that may accompany this process. Permission to launch a project does not necessarily imply legality, honesty, or success. To avoid losing money, it is important to be critical of information, conduct thorough research, and not fall for fraudulent schemes. Always remember that exercising caution is the best strategy to avoid fraud in the crowdfunding world.